Reduce Your National Insurance Bill with Employment Allowance: A Guide for Small Businesses

Are you a small business owner in the UK? If so, you could be eligible for a valuable government scheme called Employment Allowance, designed to reduce your National Insurance costs. This comprehensive guide covers everything you need to know about Employment Allowance, including eligibility criteria, claiming process, and de minimis state aid implications.

What is Employment Allowance?

The Employment Allowance is a government initiative that enables eligible businesses and charities to lower their yearly National Insurance liability by up to £5,000 per year. This reduction is applied directly to your employers’ Class 1 National Insurance payments each time you process payroll, until the allowance is exhausted, or the tax year concludes, whichever occurs first. Even if your National Insurance liability is less than £5,000 per year, you can still claim the full allowance.

Who Can Claim Employment Allowance?

To claim Employment Allowance, you must meet the following criteria:

• Be a business or charity, including community amateur sports clubs.
• Have had employers’ Class 1 National Insurance liabilities below £100,000 in the previous tax year.
  Not be a public body or a business conducting more than half of its work in the public sector (unless you are a charity).
• Not be a company with a single director who is also the sole employee subject to secondary Class 1 National Insurance.
• You can also claim if you employ care or support workers.

How to Claim Employment Allowance

Claiming Employment Allowance is a straightforward process that needs to be done every tax year. The earlier you claim, the sooner you can benefit from the allowance. You can claim at any point during the tax year.

Here’s how to claim:

• If you use your own payroll software: Change the ‘Employment Allowance indicator’ field to ‘Yes’ the next time you submit an Employment Payment Summary (EPS) to HMRC. If your software lacks an EPS field, use HMRC’s Basic PAYE Tools.
• If you use HMRC’s Basic PAYE Tools: Select ‘Yes’ for the ‘Employment Allowance indicator’ field, answer the de minimis state aid questions, and submit your EPS as usual.

Understanding De Minimis State Aid

For businesses in specific sectors, Employment Allowance is classified as ‘de minimis state aid’, which refers to financial support provided by the government. These businesses are subject to a limit on the total amount of de minimis state aid they can receive over a three-year period. Exceeding this limit disqualifies them from claiming Employment Allowance.

De minimis state aid limits are likely to apply if:

• Your business operates in Northern Ireland.
• Your business is involved in manufacturing or selling goods, or wholesaling electricity.

To ensure compliance, businesses subject to de minimis state aid rules must:

• Calculate their total state aid received.
• Verify that they are below the limit.
  This applies even if your business is not profitable. The de minimis state aid limit is determined by your business sector and is calculated in euros.
  You can find detailed information about de minimis state aid limits on the GOV.UK website.

Claiming for Past Years

You can claim Employment Allowance retrospectively for up to the previous four tax years, dating back to the 2018 to 2019 tax year. This could lead to £20,000 tax refund if you are eligible in all years!

Important Points to Remember

HMRC will not issue a confirmation letter for your Employment Allowance claim, but you should be able to see this in your HMRC portal.
You can start utilizing your Employment Allowance as soon as your claim is submitted.
This blog post is intended for informational purposes only and does not constitute professional advice. It is recommended to consult with a qualified professional for specific guidance related to your business circumstances.